Ideally, here's how some consultants say developing and distributing a new mutual fund is supposed to work: Product development teams and top leadership at mutual fund companies come up with a set of goals for investors and the company. Development teams then put together a new fund based on those goals. A portfolio manager, who understands those goals, oversees the product. Wholesalers communicate the goals to brokers. Brokers, in turn, communicate the fund's goals clearly to investors who buy into it. Everybody understands the plan.
But here's how it often really works, according to Lisa Cohen, an executive at sales consulting firm The Collaborative: Product developers put together a value fund because those types of products are doing well in current markets. Portfolio managers then manage that value fund. Wholesalers tell brokers to sell the fund because it will perform well. Brokers try to sell the fund to investors while using ad-libbed or stale sales strategies. The individual investor, who has a headache, goes home to discuss the fund with his or her spouse. Too few people understand the plan and the fund's objective, she said.
Static from Top to Bottom
Cohen, and other consultants, say the old way of marketing through distribution channels is flawed. The messages communicated from top officials, such as why a fund has been developed, don't trickle down to individual investors without becoming muddled, she says. And in order for companies to recover from the markets' current woes--and coax investors back into equity markets--they will have to crystallize their marketing messages, she said.
When markets enjoyed years of bullish returns, fund companies never focused on communication throughout their distribution channels because the old system worked, Cohen said. But as markets declined in the past year and a half, and then found new bottoms after the terrorist attacks of Sept. 11, Cohen said the problems with mutual fund sales processes were exposed. "You have no idea the cracks that are showing now," she said. "There's no product strategy...People are asking the bigger questions. The sales and distribution process has to change."
Tell a Clear, Simple Story
Cohen and other consultants recommend that companies start telling stories about their products, creating clear, simple messages that will survive the journey from senior management to individual investor unscathed. They point to Fidelity Investments, which used the history of famed portfolio manager Peter Lynch to reassure investors that they will survive volatile markets. They also point to Putnam's lore of George Putnam and the story of Jack Bogle starting the first index fund at Vanguard.
Like those companies, consultants say firms should talk about fund managers and the company's founders. They should talk about what the fund does for investors, how it accomplishes those goals and make the message clear, concise, and easy to understand, consultants say.
Whatever companies decide for their messages, consultants say firms need to communicate them consistently from top company officials down through distribution channels to individual investors.
A Marketing Message Flow Chart
Cohen identifies eight points along the distribution process where a product message--its history, purpose and value to the investor--should always be clear: Product development, portfolio management, marketing, sales management, wholesalers, brokers, investors and wives and brothers-in-law who influence investors' decisions.
"All through the process, we need to create stories that work in lots of different markets," Cohen said. "How to talk about this product [compared to] other products."
Consultants say larger fund companies have been employing this strategy for years--at least with a handful of their products. But now, "smaller fund complexes will get wise to this," Cohen said. "It would be very helpful to them if they did."
An End to the Product Push Days
Charles O'Neill, a principal with the Boston-based recruiting firm Diversified Management Resources, said a fund company "needs to be in close touch with what the value proposition truly is. One of the important considerations is that brand is not to be confused with corporate logo or identity. Unfortunately, I think it has been."
But consultants also recognize that fund companies are not very nimble in product development. They are large and cumbersome. And the products in this industry are far more complex than those in others.
"It's a service; it's an abstraction," O'Neill said. "Basically, to some large extent, the story of mutual fund sales and marketing has really been around product push."
The many people in charge of sales have been the most powerful executives at the firm, O'Neill said. "You find the fund that has the best short-term performance and promote it. That's how assets have grown. That has been what's worked. But I think they're wrong, in that that's not what's going to work in the future."